reducing the scope for policy makers to raise interest rates

Economic expansion in Thailand and Malaysia last quarter probably fell after global demand declined, reducing the potential for policy makers to raise interest rates when the rise in commodity prices increase inflation risks.

The Thai economy grew 7.2 percent in the three months to September last year after expanding 9.1 percent in the second quarter, according to the median forecast of 15 economists surveyed by Bloomberg News. The Malaysia's gross domestic product increased 5.6 percent after expanding 8.9 percent the previous period, the sample median of 12 estimates.

The International Monetary Fund said last month's Asian policy makers should be pioneers to leave the policy of encouraging "to address the pressures on prices of goods and assets." Malaysia and Thailand have paused after raising borrowing costs earlier this year, citing the prospect of weaker global economy, while Singapore, India and South Korea tighter monetary policy to combat this quarter inflation.

"The Asian countries are having a headache strengthening currency manipulation and the risk of accelerating inflation," said Pimonwan Mahujchariyawong, an economist at Kasikorn Research Co. in Bangkok. "A slower economic growth in the future will make it difficult to raise interest rates, but they have to end because rising prices of commodities and cash flows of fuel pressure on prices and asset bubbles."

Food Prices

The world food prices rose at the highest level in more than two years in October as costs rose for the meat, dairy products, cereals, oil and sugar, according to the United Nations Food and Organization Agriculture.

U.S. Federal Reserve said this month it will buy 600 billion U.S. dollars of treasury bonds to stimulate the world's largest economy, a move that political leaders from Asia to South America said it could depress the dollar and lead to capital flight emerging markets.

Malaysia and Thailand report GDP data for the third quarter on November 22.

"In the Malaysian economy, recent indicators on exports and external sectors related to the stated expectations of moderate growth before the third quarter," said the central bank on 12 November. "However, domestic demand provided strong support for growth. In the future, overall growth will remain well supported by domestic economic activity."

Malaysian Central Bank left unchanged borrowing costs for a second consecutive meeting this month and promised "increased vigilance" against the potential risks posed by capital flows. These investments have contributed to the ringgit appreciation of 9.6 percent this year and pushed the stock market to an unprecedented level.

Currency Effect

While the results of a stronger currency in cheaper imports, but also makes shipments abroad more expensive in the country. Malaysia's exports grew at the slowest pace in 10 months in September, shipments to the U.S. and China declined.

The economy of Southeast Asia, whose products include palm oil IOI Corp. and Intel Corp. computer chips, may experience some slowdown in the last quarter of 2010, the International Trade and Industry Minister Mustapa Mohamed said last month . The economy is forecast by the government to grow 7 percent this year and up 6 percent in 2011.

The Thai Prime Minister Abhisit Vejjajiva, November 12, said he is "still concerned" about the gains in the baht, which strengthened earlier this month to the highest level in 13 years. The currency has appreciated more than 11 percent this year, the best performing in Asia, raising concerns that the property in Thailand can be more expensive relative to its regional rivals.

Exporters complain

General Motors, Ford Motor Co. and Siam Cement Pcl are among the companies cited money as a threat to shipments from Thailand, an exporter of cars, rice and electronics. Export growth in Thailand slowed in October as cooling global expansion and demand for the baht strength cushioned to the assets of the nation, a report showed today.

Consumer confidence in Thailand fell for the first time in six months in October as the baht rose and the country's worst flooding in five decades devastated farmland, a report showed this month. Abhisit said that flooding may slow GDP growth in Thailand this year by 0.3 percentage points.

In contrast, Taiwan's economy grew faster than economists estimated last quarter, and added that in the event of a third increase in interest rates this year to prevent the housing bubble. GDP rose 9.8 percent in the three months to September last year, the statistics office said on Monday. The median estimate in a Bloomberg News survey of 17 economists was 8.34 percent.

Capital measures

Thailand last month to withdraw a 15 percent exemption from tax for foreign income of domestic bonds and the Bank of Thailand Governor Prasarn Trairatvorakul October 21, said the bank is considering additional measures to reduce the volatility of the baht.

Sean Callow, senior currency strategist based in Sydney at Westpac Banking Corp. and Pimonwan Kasikorn Research expects the central bank of Thailand to keep domestic interest rate benchmark by 1.75 percent for a second meeting on December 1 to avoid attracting more flows of money and adding pressure on the baht.

Prasarn said last month that while inflation is not under "immediate pressure," there is a risk that price increases may accelerate to the top of the central bank's target next year.